Oil prices fell over $3 to near $83 a barrel Monday after Standard & Poor's downgraded the U.S.'s credit rating — a blow to confidence that could hurt economic growth and demand for crude.

By early afternoon in Europe, benchmark oil for September delivery was down $3.52 to $83.36 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 25 cents to settle at $86.88 on Friday.

In London, Brent crude was down $3.58 at $105.79 per barrel on the ICE Futures exchange.

Oil plunged after Standard & Poor's announced Friday it was lowering its rating for U.S. debt one notch from AAA to AA+. Investors are concerned the first-ever U.S. debt rating downgrade will batter already weakening consumer confidence and hurt economic growth.

"A drastic weakening of sentiment has brought oil prices down sharply, with sovereign debt fears key in a mounting loss of faith in economic, and hence demand, prospects," Barclays Capital said in a report.

Crude traders often look to stock prices as a barometer of overall investor confidence, and oil prices were swept down Monday by a major sell-off across Asian stock markets, followed by falling indices in Europe, as well.

"Further losses can be expected in the near term, as financial investors should reduce risk positions on the back of high risk aversion and the uncertain economic outlook," said analysts at Commerzbank in Frankfurt.

Concerns over debt problems faced by several members of the European Union contributed to the overall negative tone and the bearish action in markets across the continent, even as the European Central Bank promised to buy up Spanish and Italian bonds to help the two countries avoid devastating defaults.

"We maintain that commodity markets will continue to tighten as long as global economic growth remains broadly positive and the emerging market economies in particular continue to perform," Goldman Sachs said in a report. "We expect that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand."